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money’s worth of any consideration received in exchange therefor.
See sec. 2512(b); sec. 25.2512-8, Gift Tax Regs.
Petitioners each reported his or her transfer of one-half of
the gifted interest as a net gift. Each treated as sales
proceeds (consideration received) (1) the amount of Federal and
State gift taxes that he or she calculated were to be paid by the
children (the gift tax amount) and (2) an amount described on
brief as the “mortality-adjusted present value” (mortality-
adjusted present value) of the children’s contingent obligation
to pay the additional estate tax that would have been incurred on
account of section 2035(c) (the 2035 tax) if that petitioner had
died within 3 years of the date of the gift. Petitioners
describe their computation of the mortality-adjusted present
value as follows:
Petitioners * * * estimated the amount of estate tax
that would be owed under I.R.C. � 2035(b) based on an
expected 55% marginal estate tax rate. Then
Petitioners adjusted that amount to present value at
the applicable discount rate under I.R.C. � 7520 for
January 1996, with further adjustment for the
possibility that they would survive each year of the
three-year period with no estate tax actually being
owed. The probability of death in each of the ensuing
three years was calculated, and then the probability-
weighted tax amounts were discounted to present value
at the required interest rate. All calculations were
made, as required under I.R.C. � 7520, by reference to
Petitioners’ ages as of their nearest birthdays, the
applicable interest rate under I.R.C. � 7520 for
January, 1996, and mortality factors provided by Table
80CNSMT (as found in Respondent’s Pub. 1457, “Actuarial
Values, Alpha Volume”).
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